You can negotiate a loan even after you contact a lender.

Just like getting a new car, it pays to shop around. Even for a mortgage, it pays dividends to find the right loan for you.

"Many times consumers take the first deal offered to them," says Doug Lebda, founder and chief executive of LendingTree. "They don't realize shopping around and negotiating are the ways to get the best deal."

As a home buyer you can expect a lot of fixed fees and cost associated with getting a loan. The appraisal, credit report, and flood certificate are usually fixed third-party fees, but there is some room wiggle room to negotiate the other items.

"You can't negotiate fees from the lender, but sometimes you can get the mortgage broker to waive the application fee or the processing fee," says Patti Frank, vice president at Americana Mortgage. "Banks have to be equal to everybody. They can't give this guy a break on certain fees and not the other guy." While getting a mortgage broker to waive the application fee or processing fee may seem minuscule -- every little bit helps. According to Frank, both fees can cost anywhere from $200 to $500.  I just want to add to Ms. franks statement that in California it is illegal to charge an application fee..  It is free to apply for a mortgage unless you have sub-prime credit.  Clients with FICO scores ranging from 500-639 should expect to pay a $200.00 - $250.00 upfront application fee. However  that fee should be reimbursed if loan closes/funds.  If you are a sub-prime borrower check with the lender on what his/her policy is.

For buyers worried about the amount of money needed at closing, they can reduce costs if they find a bank that isn't impounding real estate taxes and homeowners insurance. Often lenders will escrow six months of real estate taxes and three to four months of home owners insurance premiums, which could add up to a large sum on top of all the other costs.

Buyers should be watching the 10 Year Bond.  If the bond drops 6 points in one day they can expect an .125% drop in rate, or 1.00% point increase of lender credit.

If the bond yield drops 15 basis points in one day, you as a borrower could lock in a rate .250 -.375% better than the previous day, or again opt for a little higher rate and get more lender credit back to help with closing cost.  A lot of loan officers aren't watching the 10YR closely so that can be a great advantage an a significant amount of money for you.

Another area to save in the home-buying process is with escrow fees. Escrow companies charge differently.  Escrow companies charge a flat fee but it's based on the loan amount.  Each company has different pricing for each tier. Because the prices can vary, mortgage experts recommend calling several Escrow Companies and getting their rates and what's included before deciding on who to work with at closing.  Also please note on a purchase if the seller is choosing the Escrow company, then the seller has to cover it.  If the buyer chooses the Escrow company, then the buyer has to pay for it.
 
Total closing costs should be less than 3% to 5% of the purchase price--anything above that may mean the borrower is over paying.  If you are purchasing a home, you can negotiate with the seller to credit you a certain percentage, or dollar amount of the proceeds to help with your closing cost.

The experts admit negotiating a mortgage is easier said than done because the terms can be so complex and overwhelming for the borrower.  As a borrower you need to educate yourself before committing to a lender.  Yes here in California a $400,000.00 FHA 30YR FX mortgage will have close to $20,000.00 in total loan fees.  So be prepared to accept it, see what fees can be negotiated, and what fees are being rolled into the loan, and what is being covered by the seller if it is a purchase.

To start borrowers need to ask a variety of lenders for a good faith estimate to find the best rate. A good faith estimate will lay out all the costs associated with the mortgage and the buyers should review each estimate line by line and see what can be negotiated.  Some of the fees you can negotiate are the underwriting, processing, administration, and courier fees.  It is best to shop multiple lenders but not just to get the best possible rate, or the lowest amount of closing cost, but also ask how fast are the turn times for closing.  If you have a rush on a purchase contract it might be worth $200.00 more for a 7 day closing.  And yes I have seen loans close in a weeks time.

How to Calculate Months of Inventory and The Fed Decision Today...RATES

A very simple but equally important gauge to the housing market is the "Months of Inventory".  In most specific neighborhoods if there is between 5 and 7 months of inventory available, then the market will/should be considered balanced.  If there is lets say six months of inventory then pricing should be stable, maybe a little increase for inflationary reasons, but not by demand. 

When inventories exceed 7 months, that is a good indication that there are more houses available than buyers.  This will let buyers be in more control and dictate the price, terms, and conditions of the sale, if the seller wants to make a deal. 

When the housing market in your area has less than 4 months supply, that is an indication that sellers have more of a say in their transaction, which we all know causes a huge increase in housing prices.  AKA a sellers market. For example, I just went on tour this morning in Novato, and the prices are staggering.  A 4 bedroom 2 bath 2 story Contemporary home with very little land will average $875,000.00.

So how to you know where your neighborhood stands.  The calculation is very simple.  You will take the number of current listings in your neighborhood and divide them by the Pending sales of last month.  All pending sale means is there's a contract in the works but the deal has not closed yet.

You might want to pick a specific area by price, or by one month, or by how many houses.  I will give you the steps.

For any given price range or area:

1: You will want to find the number of active listings for a certain time, (day, month, year)
2: Look up the number of Pending/Current transactions for the same duration.
3: Divide the number Active transactions by the number Pending transactions.

The result should be the duration measured for that specific price, or area.

Some sights to get the information are Zillow.com, Realtor.com, or your best bet is a Realtor itself.  Real Estate Agents pay good money each month for use of the MLS (multiple listing service).  So have them give you the information.  In my area MLS Alliance.com is great for San Mateo Counties - Santa Clara County.  For Marin County please try GreatHomes.org.   I do not get paid for using their names so I will.  In Marin County Frank Howard Allen and Melissa Bradley are great agencies for information, and executions if you are in the market.
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FED Decision Today

As usual I got wordy in my first subject.  However the Federal Reserve today voted 9-1 to leave the FED FUNDS-RATE unchanged basically at 0%, the fund rate has not moved since 2008.  I will go into it more tomorrow, but in a huge nutshell rates are still incredibly low compared to 6 weeks ago, so if you have not locked in your interest rate yet, please do so as soon as you can.  Rates will not be this low for long.

Are We Headed For a Bubble?

As I mentioned briefly yesterday Pending Home Sales by the National Association of Realtors shows a decrease of 6% from the same time last year.  The  Pending Home Sales Index (PHSI) is a forward looking index that measures homes in contract that have not yet closed.  The NAR assumes that 80% of those loans will close in the next two months.  The closed sales will be tallied in the Existing Homes Sales Index.

The PHSI co-insides heavily with NAR's Existing Home Sales Index, the agency's monthly report of actual closings.  It is important to note that most homes under contract have a successful settlement within 60 days.  So we can predict the existing sales figures to rise, or fall depending on how the pending figures stand up. 

With interest rates low and inventories lower this summer we saw sellers benefiting greatly with high demand and multiple bidding situations.  Now with winter cooling off, the buyers might benefit from slowing sales.  However this should not be news to anyone.  The peak time for real estate is February through August, then in September through January the market slows.  Mainly cause it's cold outside, and two the Holiday Season is upon us and Hot Wheels and Barbie Dolls for the ankle biters is more important than making that big home purchase.  Don't get me wrong though, when I was a Realtor those homeowners who still had their houses on the market in the off season were desperate for a sale.   So with falling prices and decreasing interest rates this might be an opportune time to negotiate a great deal on a home. 

With that said the September 2013 Pending Home Sales Index is a reminder of two things -- the strength of the U.S. housing market, and the growing possibility of a late-year slowdown.
Home sales are expected to remain strong relative to recent years, and home values are still expected to climb in 2014.

Now back to the title, Are we headed for a Bubble?  Lawrence Yun the Chief Economist for NAR said a decline is expected.  "Affordability has fallen to a five year low as home price increases easily outpaced income growth."  Mr. Yun also expects interest to continue to rise which will further hinder affordability.  We'll find out more tomorrow after the FED Meeting to see where interest rates are headed.  Next month we could possibly see more delays associated with the "government shutdown" 

According to Freddie Mac the average conventional 30YR FX rate rose to 4.49% from 4.46% from last month.  That is the highest jump since July 2011.  Please remember interest rates were at 3.47% in September 2012.

The national average price for existing homes now is $199,200.00, up 11.7% from this time last year.  The is the 10th consecutive month of double digit year over year gains.  We must be nervous, because I don't know anyone who is seeing double digit incomes, unless you work for Tesla, Yahoo, or LinkedIn.  I guess one aspect to look at is the possibility that home values went down farther than they should have in 2008-2011, so now people are jumping in paying what should be looked at as normal prices.  Right now the pricing is really close to where  levels were in 2004.  Which does not say much considering 2004 was such a crappy year for a lot of people.

Properties in distressed situations such as those in foreclosure, or are short sales accounted for 14% of total sales in September.  That's a 2% increase from August, big deal.  What is a big deal is that this is the biggest slowdown since tracking began in October 2008.  In September of 2012 distressed sales accounted for 24% of total transactions.  The decrease in distressed sales might be a good reason for some of the growth in the median price.  I am still a believer that the banks are sitting on a boat load of foreclosures that are in good condition, and they will not put those houses on the market until the market improves and they can scalp out for big gains.  Also the banks do not want to saturate the market with more distressed properties, because that will whack the market again.

The data from realtor.com shows (and this should be no big surprise) Detroit had a 44% gain in price, Las Vegas was up 31% and Sacramento up 30%.  Those three cities were the hardest hit in the whole country back in 2009.  All that means in Detroit the median price for a home went from $15,000.00 to $21,600.00.  Still lower than the average price of a new car.

As of September 2013 there are 2.1 million homes are listed nationwide, that is a 5 month supply, whish is a little short, 6 months is considered normal.  Unsold inventory is up 2% from this time last year. 

The average time a house stayed on the market was 50 days in September, up from 43 days in August.  However homes stayed on the market almost 70 days back in September 2012. 

For my target audience First Time Home Buyers, FTHB's accounted for 28% of the transactions last month, down from 32% in Sept 2012. 

Now for the ones that crush me, The all Cash Transactions are 33% of all sales in September.  19% of all the transactions were investors looking to fix and flip, of those 74% were paying cash.

Now that I truly bored you with the numbers do you still think we are in bubble?  I hope not, I feel better when my clients make money on their purchases, not lose money. 

Mike Brown
Clear Lending
NMLS 333411
mibrown@clrloans.com
415-962-1521

Buying your home!

First off I do not want to bore you with the numbers but pending home sales were slightly down this month from last month.  5.6% to be exact.  However home prices still continue to climb.  What does this mean.  All this means is there is not a whole lot of inventory available, and there is still a demand.  Pending home sales are still rising in areas of Colorado and Texas.  For the most part, those two states have the biggest gains in the entire country right now.

If you are still in the market to buy a home great.. Congratulations again...

1. Frequently the first person you consult about buying a home is a Realtor, or Broker.  This is a good way to go because Real Estate Agents and Brokers will give you great advice, but they will direct there service to help the sellers, and not necessarily help you the buyer.  It might be best to find an agent that specializes in buyers. A little something to think about is this.. In California we have what is called "Duel Agency".. Where the listing agent can also represent the buyer at the same time.  This is most beneficial to the Realtor because he/she will receive commissions on both sides of the transaction.  So if you get in a multiple bidding, or competing situation it might be best to use the listing agent.  That way even if your offer is not the highest, if the Realtor is going to get a huge commission, he/she might still put your contract ahead of the line.

2. Before you sign an agreement you might want to talk with an Attorney to see how you can get your interest protected.  California is not an Attorney State, but a lot of states in the Mid-West and East Coast are.  In attorney states not only will the attorney protect your interest, they will also be working as closing/settlement agents.  Basically they are Escrow officers.  I am not an attorney, but my simplest advice would be, not to have a loan contingency date on the purchase contract.  Your Realtor will know what I am talking about.  Remove the loan contingency the day the loan funds and the property records.  That way if the loan does fall apart, you will still get your deposit back.

3. Terms of the agreement of sale.  Here are some important points to consider.  The Real Estate Agent should give you a pre-printed contract.  Please read each item in the contract.  Make any changes you want on the contract.  List all the appliances, and personal items if any you want to stay in the home.  You must also agree with the seller as to when you want to move in.

4.  The Mortgage Clause is kind of what I talked about earlier.  It's an agreement that is if the deal falls through because the loan was denied you as a buyer get your deposit back.

5. Pest.  Yes it is advisable to get a Pest Report on the subject property before buying the home.  Yes you as a buyer has the right to cancel a transaction if the house as termite damage, or rodent damage, and the seller refuses to fix/repair the damage.  A pest report is about $125.00, money well spent if you plan on making a $400,000.00 investment.

6. Home Inspection.  Again it is advisable to get a home inspection.  Like a pest report a home inspection will list the condition of the entire house, ie the plumbing, the structure itself, the roof, electrical, floors, air conditioner, heater, and finally is the lot graded so water flows away from the house, and not in it.  A good home inspection cost about $350.00.  Again it's worth it when making a huge purchase.

7.  If you are looking at a house built before 1978, then you might want to consider the possibility that the house has lead based paint.  There are disclosures provided in the listing packet that explain this.

8. Environmental Concerns.  This is also in the disclosure packet.  If the house was built near or around oil tanks, or if the soil is contaminated, then have the seller pay to clean it up, or don't buy the house.  If you absolutely love the place, then you could offer to split the cost to do any clean up.  Or ask for a huge discount.

9. Sharing of expenses.  The seller should cover all fees for taxes, HOA dues, and utilities until the day the property records and you the new owner moves in.  There should be no sharing of expenses, unless you purchase a foreclosed property, or a state lien property.  In those cases you might have to pay back taxes, or pay for repairs, or pay for delinquent HOA dues.

10. In California the seller pays the Closing Settlement Cost, because the seller chooses who to use.  If you have your favorite Escrow Company then you can pay to use him/her.

11. Shopping for a loan!  This should actually be the first thing you do before looking at properties.  Most Realtors will not even take you out on tour unless you are already pre-approved with a lender.  With that said find out what product best fits your needs.  Then shop around for the lowest rate, least amount of closing cost, and the fastest closings, with the least amount of paperwork.  Mortgage brokers might offer you a great rate but their fees can be awfully high.
11a. Government programs are great if you don't have a lot of money to put down, your credit is not so great, or you have higher deb to income levels.  Yes government programs are easier to get approved for and the rates are very low, with minimal closing cost,  but you have mortgage insurance/funding fees.  And that my friend can be expensive.  But FHA, VA, and USDA are all great tools to get into a home, then if the value increases, refinance out of it.
11b. CLO's Computer Loan Origination is probably the most commonly used way to apply for a mortgage today, a few years ago not so much.  In the past clients were charged a fee to apply online for a home loan, not anymore.  It is illegal to charge a fee for the application, unless the applicant has made prior arraignment with the Lender.  For example the applicant might have really bad credit, but still wants to apply.  The lender might charge $200.00 upfront for the application, but if the loan funds that applicant will get his/her money back at closing.
11c.Types of Loans:  Well you have Fixed Rate Loans and Adjustable Rate Loans. Conforming Loans and High Balance/Jumbo Loans, Government Backed Loans, and Interest Only loans, yes those still exist.  My advice is for you to shop around and pick which one best suits your needs.
11d. Locking, or pricing your loan.  After you find a Lender and a loan product that best fits your needs, the next step is to lock, or price your loan.  There are several options when it comes to pricing.  The first option is "Buy Down" the rate meaning get a really low interest rate and pay for it in the terms of an added point to the loan.  A "point" is 1% of the loan amount.  If you want the Lender to help cover some if not all the closing cost you can opt for a No Point, No Fee Loan"  the rate is about .500% higher than the lowest rate but it will offer anywhere from 1.500% to 2.200% "points" back in the form of "Lender Credit" which you can use to help pay some if not all of the loan cost.
12.  Escrow Expenses.  I know I am skipping some steps but after you found a home and your loan is approved, you will want to look at the Escrow or Settlement fees.  When you locked your loan hopefully you got some lender credit to cover the closing cost.  If not you can ask the Seller if he/she will kick down a few bucks to help out, if that does not work out, then ask the Realtor to help out.  If not be prepared to come in with some cash to close CTC's.  The exact amount will be on the Good Faith Estimate. 

If you have questions please contact:
Mike Brown
Clear Lending
Mortgage Loan Officer
NMLS 333411
415-962-1521
mibrown@clrloans.com

 

How Much of a House Can You Afford

When deciding on how much of a home you can afford will depend on several factors.  The first is doing the math yourself, or having the bank do it for you.  Most people will have a banker do it because it's faster and easier for the client.  The downside to that is the bank will use a different formula than you will, and might qualify you for higher amount than you are comfortable with.

Lets look at both formulas to home affordability.

A bank does not necessarily look at the purchase price of the home.  Rather the bank will look at the projected mortgage size plus interest, and determine the monthly mortgage payment.  The bank will take that number and divide it by you monthly income.  This formula is called the Debt-to-Income Ratio, also known as DTI.  The DTI as two aspects to it.

The First aspect is the Front End DTI, or Housing Ration.  You take the projected monthly mortgage payment and divide that by your income.  The projected monthly mortgage payment will include,

• Principle,
• Interest,
• Monthly Property Taxes
• Monthly HomeOwners Insurance
• Association Fees.

There is a no maximum front end DTI, but most lenders want to be at 36% for conventional, and as high as 46% for FHA.

The Second Aspect is the Back End DTI, or Closing Ratio.  For this you have to add the housing expenses plus all your other debts combined.

Back-end ratio accounts for all of the following monthly obligations a home buyer may have :

• Monthly housing payment(s)
• Revolving credit card payments
• Monthly child support or alimony
• Monthly car payments for a car loan or lease
• Monthly payments to an installment loan such as a timeshare

In general, banks want to see a back-end ratio of 40% or less, however, having a DTI over 40% will not automatically disqualify your mortgage application. Many lenders allow up to 50% back end debt-to-income for Conforming Loan Amounts less than or equal to $417,000.00 in California.

One of the easiest ways to figure out your comfort level for a monthly payment is to work the math backwards.  For example you want your monthly payment to be $2500.00 a month for everything.  Everything is: Principle, Interest, Property Taxes, Homeowners Insurance and Mortgage Insurance if you are on a FHA type program.  Lets say you buy a house for $490,000.00 with a loan amount of $385,000.00 at 4% on a conventional loan.

Principle and Interest Payment is ...........................................$1838.05 a month
Home Owners insurance is .025% x 385000.00 or 962.50/12 = $80.21 a month
Property Taxes is $490,000 x 1.25% =$6125/12 or .................$510.42 a month
Your total monthly payment is .............................................. $2428.68 a month.

For an FHA loan of $385,000.00 at 4% you will have to add $433.13 in MI to the mortgage payment of $2428.68.  So your total is $2861.81 a month.  So with FHA you might want to borrow less money to compensate for the mortgage insurance. 

Mike Brown
Clear Lending
NMLS# 333411
Novato CA 94949

Rates today YEAH!!!

10/22/2013:  Well it is good news if you are locking your mortgage today.  With employment numbers falling short by about 32,000.  The Feds took measures to continue buying mortgage backed securities (MBS's) which in turn whacked interest rates today.  A typical FHA 30 YR FX High Balance loan is in the high 3% range with paying the point. (1% point cost).  A no cost FHA 30YR FX High Balance loan is in the mid 4% range.  For people with great credit looking at conforming 30YR FX products par pricing is in the lower 4% range.

In May when the Housing Reports were showing strong numbers the Federal Reserve thought the economy was improving so they would stop pumping $40Billion a month into the markets.  That fear drove rates from 3.57% up to 4.65% in weeks.  That rapid increase dried up the refinance business and put a lot of home purchasers out of their comfort levels.  In September the Feds announced they will continue with a third round of Quantitative Easing (QE3). With the results today, things are not so bright as they seem.  The economy is continuing to show signs of weakness.

With QE3 still on the horizon all Government backed mortgage products as well as Fannie Mae and Freddie Mac loans should start seeing signs of suppression.  What that means for you, if you have equity in your home, think about refinancing again.  If you are nervous about purchasing, you might want to get off that fence, get your paperwork together, and go start looking...again.

**About the Author** Mike Brown (NMLS 333411) is a licensed mortgage loan officer in Marin County California.  You can reach Mike Brown on Google, or if you prefer email the address is mibrown@clrloans.com.